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| Author: | Beine, M. |
| Title: | Conditional covariances and direct central bank interventions in the foreign exchange markets |
| Journal: | Journal of Banking and Finance
2004 : JUN, VOL. 28:6, p. 1385-1411 |
| Index terms: | Banking Central banks Foreign exchange Portfolio management Markets Models |
| Language: | eng |
| Abstract: | This paper investigates the effects of central bank interventions (CBIs) on the ex-post correlation (hereafter as: corr.) and covariance (here as: cov./covs.) of exchange rates. Using a multivariate GARCH model with time-varying conditional covs., the effects of CBIs are estimated on both the variances and cov. btw. the Yen and the Deutsche Mark (the Euro) in terms of the U.S. dollar. The paper's results suggest that coordinated CBIs not only tend to increase the volatility of exchange rates but also explain a significant amount of the cov. btw. the major currencies. It is shown that this result can be useful for short-run currency portfolio management. |
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